Report Cites Worsening Political Risk in Zambia

According to a new market report by the Economist Intelligence Unit, the operational risk model for Zambia has been downgraded to reflect deepening perceptions of political risk.

The score for government effectiveness risk has worsened by four points, to 68. Recent developments have pointed to an increase in policy risk in Zambia. A number of new regulations have been introduced, with limited private sector consultation, including a 67% increase in the basic minimum wage. Furthermore, the government has proposed a series of revisions to the Companies Act, which include major restrictions on foreign-owned firms, including on their right to borrow funds locally. The revised Companies Bill also gives an unspecified cabinet minister the right to prescribe, by regulation, that a certain sector is not open to foreign investment, and does not explain what would happen if the minister were to nominate a sector in which foreign firms were already present. The Economist Intelligence Unit’s central scenario is that the more radical measures proposed under the new Companies Bill will not get through parliament, but this is not certain.

The score for foreign trade and payments risk has weakened by four points, to 43. Only weeks after the president, Michael Sata, said that the government had abandoned previously mooted plans to restrict the repatriation of profits, senior government officials have indicated that these plans are back on the table. Mr Sata and his government came to power on a mandate of raising the extent to which Zambians (as opposed to foreign investors) benefit from the country’s mineral wealth, and are likely to face continued public pressure to introduce controls on the repatriation of earnings from exports (which consist predominantly of copper). Following recent statements by senior officials, the likelihood of some capital controls being introduced is now high.

Owing to these changes, the overall risk score for Zambia has worsened by a point, to 52.